Greece 5-year yields seen near 5 to 5.25 percent

A five-year benchmark issue for Greece, its first international bond issue in four years, has attracted more than 11 billion of investor interest as they cast aside memories of a painful haircut they suffered two years ago.

The sovereign set initial price thoughts at a 5 percent-5.25% yield on Wednesday afternoon for pricing Thursday.

"Investors are desperately searching for yield and it is very hard to find anything that pays more than 3 percent to 4 percent in the current market,'' said a banker on the trade. ``This deal is one of the few ways of getting yield in a liquid security.''

"Greece is back," analysts at Credit Suisse proclaimed. After a grueling austerity program under the terms of its two bailouts international lenders, and possibly more importantly European Central Bank President Mario Draghi's pledge to do "whatever it takes" to save the euro, Greece is no longer talked of as the first country likely to leave the single currency.

The yield on Greece's 2024 bond has fallen to around 6 percent, according to Tradeweb, or about 220bp more than 10-year Portuguese bonds. The curve between five and 10-year bonds for Portugal is 130bp.

Being able to auction off bonds is a clear signal of return of faith in Greece, which less than two years ago seemed to be a basket case. Ireland and Portugal, also bailed out by the troika, have both made cautious returns to the markets in recent months.

Greece's economy hit the low point of its recession in 2013, after shrinking by an average of 6 percent for four years in a row, before stabilizing and returning to slow growth this year.

More money entered than left the country in 2013, for the first time since records began, which seemed unthinkable just a few years ago. This was mostly thanks to a wave of tourism.

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Yet Greece may not be a safe bet, with economic growth still noticeably weak, despite a low base to recover from. It has underperformed compared to Portugal and Ireland, its counterpart small bailed-out countries.

"The most dynamic and export-led sectors in industry have probably been growing in the first quarter (of 2014)," according to Daniele Antonucci, senior European economist at Morgan Stanley.

"Yet momentum still appears quite weak and the manufacturing PMI, having hovered above the threshold of 50 that separates expansions from contractions, is now back below it, in 'recession' territory."

Elections either later this year or in early 2015, within three years of the last, turbulent, elections, look increasingly likely as the ruling coalition's majority shrinks. There is growing support for the new, pro-European party Potami (The River) which should restore faith that the country will remain part of the currency region.

There is also believed to be a funding gap of 10-20 billion euro over the next couple of years, although most economists are confident this can be met without a third bailout. Returning to the bond market is one way to address this gap.